The latest personal finance voice to slam the F.I.R.E. (financial independence, retire early) trend is the U.S. author, speaker and broadcaster Suze Orman. Ms. Orman figures 70 is the new retirement age, and she thinks that retiring early is unaffordable.
A big part of her argument has to do with health care costs, which are much less of a factor for Canadians thanks to our public health care system. But I think Ms. Orman still has a point. Life is long in retirement – most financial planners use a target age of at least 90 these days. If you forego a decade or two in the work force, the burden of saving enough for your retirement years becomes huge.
As Ms. Orman points out, you’ll be missing out on years of having your savings compound if you retire early. Compounding means earning investment gains on your investment gains. If you make 10 per cent on a $10,000 investment in a year, your profit is $1,000; if you make another 10 per cent in the following year, your profit is $1,100. Compounding works in your younger years, but it’s only in your later years of saving that it becomes a powerful force in building wealth.
My take is that F.I.R.E. is more about the financial independence part than it is about retiring early. People feel financially fragile after the years of uncertainty that followed the global financial crisis. We’re still not back to normal, even now – that’s why interest rates are still very low by historical standards. In this kind of environment, it makes great sense to do what you can to build your financial independence. There is no downside to paying off debt, saving and investing.
Ms. Orman on F.I.R.E.: “I hate it, I hate it, I hate it, I hate it. I personally think it is the biggest mistake, financially speaking, you will ever, ever make in your lifetime.”
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Looking Ahead: The Retirementality
That’s the name of my new podcast on retirement, which you can listen to here or download on iTunes or Spotify. There are three episodes, one aimed at millennials, one at Gen X and one at baby boomers.
Rob’s personal finance reading list
Preparing for the next financial crash
Ten years after the global financial crisis, personal finance author Robert Kiyosaki is warning about another crash. I’m not so sure we’re going to see anything as bad as 2008, but the good times for stocks and housing will certainly end at some point.
How not to get smoked by cannabis stocks
Sensible advice here – wait a year to let the smoke clear in the cannabis sector before investing.
Life insurance companies want your fitbit data
An insurer in the United States is asking customers to use fitness trackers if they want to qualify for premium discounts and other perks. These trackers keep tabs on things like steps walked, heart rate and blood pressure, which are indicators of health and thus insurability. My sense is that Canadians will hate this idea because we’re very privacy-conscious.
Tales from a crazy housing market
A new B.C. company is offering the opportunity to buy a share of a house for as little as $1, for those who have given up on actually owning a house of their own but feel they’re missing out.
Today’s financial tool
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Ask Rob
Q: Could you suggest some investments that are tax-efficient? I am 73 and have no room left in my registered accounts.
A: This article from the Globe archive on taxes and investments may be helpful. Generally, exchange-traded funds are considered to be tax-efficient because they don’t do a lot of trading and thus generate less in capital gains than the typical mutual fund. Horizons has some ETFs that are structured to be particularly efficient for taxable accounts.
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Rob Carrick